by Calculated Risk on 4/05/2007 01:39:00 AM

From the WSJ: Housing Inventory Surges in March

Using data from ZipRealty, the WSJ reports that housing inventories in 18 major U.S. metropolitan areas increased 6.5% from the end of February to the end of March. The typical increase in inventory is 1.7% from the end of February to the end of March according to the article, citing Credit Suisse.

The National Association of Realtors previously reported inventories were 3.748 million nationwide at the end of February. This ZipRealty report suggests inventories will be close to 4 million units at the end of March.

In Housing: Supply Demand Imbalance, I estimated inventories might reach 4.5 million units this summer, or approximately 9.5 months of supply.

by Calculated Risk on 4/04/2007 04:11:00 PM

I'd like to focus on the content and the incredible comments - thank you all - however the blog layout needs some attention. Please bear with me.

Unfortunately my internet security software is blocking Haloscan right now, and the Blogger comments are apparently blocked by some corporate sites. Also, the Blogger comments allow very little configuration (my only choice is whether or not to use a pop-up).

So I guess this means I need to find another solution for comments. Right now I'm looking at Typepad and I'm open to suggestion. I've received several requests for a left sidebar, so I'll give that a try too.

Thank you all for your patience. Best Wishes, CR.

by Calculated Risk on 4/04/2007 03:50:00 PM

Dallas Fed President Fisher: Risk Is a Many Splendored Thing: Lessons Learned. Excerpt on subprime and Alt-A:

Thus far, the damage from the subprime market has been largely contained, as many of my Federal Reserve counterparts have been saying. Why do we say so? To begin with, quality problems have risen primarily for adjustable-rate subprime loans, which are only about 8.5 percent of home mortgage debt outstanding. Also, much of this debt was packaged into private-label mortgage-backed securities with the downside risk spread out over a diverse group of investors. Nevertheless, because 40 percent of homebuyers last year were nonprime (subprime and Alt-A) borrowers, housing markets may feel some short-term pain, making it less clear whether housing construction has bottomed and how long the housing downturn may last. Fortunately, the financial system and the economy are strong enough to weather this storm.

While the subprime damage is largely contained, I do not mean that the market will or should refrain from punishing those who neglected time-proven rules of prudence. Nor am I suggesting that the neglect of prudent practices has not bled into other types of credit—such as the Alt-A market. Indeed, it would be atypical for lax lending standards in one area of credit not to lead to laxity in others. Nor am I placing excessive faith in models that have yet to be tested by real developments.

The subprime situation may well be a blessing in disguise. It reminds us that history does have the capacity to repeat itself. The old financial axioms—levelheaded notions such as “know your customer” (or your counterparty) and “there is a difference between price and value”—remain valid. I expect market discipline to reassert itself, swiftly punishing those who pressed the limits of imprudence or suffered selective amnesia, hopefully doing so in a way that staves off the impulse for lawmakers and regulators to interfere disproportionately.

by Calculated Risk on 4/04/2007 09:41:00 AM

The Mortgage Bankers Association (MBA) reports: Mortgage Applications Decrease in Latest MBA Survey

The Market Composite Index, a measure of mortgage loan application volume, was 649.5, a decrease of 3.2 percent on a seasonally adjusted basis from 671 one week earlier. On an unadjusted basis, the Index decreased 3.2 percent compared with the previous week and was up 5.3 percent compared with the same week one year earlier.

The Refinance Index decreased 4.5 percent to 2098.3 from 2197.7 the previous week and the seasonally adjusted Purchase Index decreased 2 percent to 402.9 from 411.1 one week earlier.

Mortgage rates increased:

The average contract interest rate for 30-year fixed-rate mortgages increased to 6.13 percent from 6.04 percent ...

The average contract interest rate for one-year ARMs increased to 5.87 from 5.84 percent ...

Click on graph for larger image.

This graph shows the Purchase Index and the 4 and 12 week moving averages since January 2002. The four week moving average is down 0.1 percent to 409.7 from 410.3 for the Purchase Index.

The refinance share of mortgage activity decreased to 44.5 percent of total applications from 45.1 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 19.2 from 20.2 percent of total applications from the previous week.

by Calculated Risk on 4/04/2007 09:06:00 AM

According to ADP:

Private nonfarm employment grew 106,000 from February to March of 2007 on a seasonally adjusted basis

After changing their methodology, ADP was very close to the BLS last month (57K vs 56K for the BLS). Remember ADP reports private sector jobs only, so this report doesn't include government jobs.

by Calculated Risk on 4/04/2007 02:42:00 AM

From the WSJ: Payment Woes Worsen On Riskiest Mortgages (hat tip Jim R). A short excerpt:

For Alt-A loans -- a category between prime and subprime that includes many loans that don't require full documentation of the borrower's income or assets -- the late-payment figure rose to 2.6% in January from 2.3% in December and 1.3% in January 2006.

It's not just a subprime problem.

by Calculated Risk on 4/03/2007 04:49:00 PM

EDIT: I am unable to respond to questions in the comments. Hopefully I'll change the layout tonight. Best to all.

All: I'm about to make some changes to the layout. This will include a wider main area, a new archive, some site feeds, and a few other changes.

Blog Rolls: I've ignored the blog roll for some time. I've decided to have two blog rolls: one for housing sites, and one for economics sites. If you want to be included, please send me an email and specify which blog roll you'd like to be listed under. All I ask is that your site be relevant (housing or economics) and that you link to my blog.

Also, I'll also be switching from Haloscan to the Blogger comments. Unfortunately I've had far too many problems with Haloscan and I'm willing to give blogger a try.

And finally, since I can't access the comments: the most useless release is the NAR pending home sales. IMO that news wasn't "bullish", and it wasn't bearish either - it was worthless.

Best to all.

by Calculated Risk on 4/03/2007 03:39:00 PM

From MarketWatch: Ford March U.S. sales drop 9%, GM, DaimlerChrysler post 4% declines as Toyota gains ground

Nothing new here. The auto industry is in a recession. Housing is in a depression. Capital spending is soft. But the U.S. consumer continues to borrow (more and more on their credit cards) and spend.

No wonder Tim Duy writes: Fed Still Looking Through the Slowdown – Should You?

Much of the recent data are weak, no doubt about it. Growth has slowed, plain and simple. And any optimism I see in the yield curve could be dissipated with Friday’s labor report. Or, as another Fed watcher once put it, it could be a case of Stockholm Syndrome, in which following the Fed forces you to think like them. But in any event, Bernanke & Co. are sticking to their guns, still looking through the downturn and downplaying the risk of recession. With so many ready to call the Fed wrong, it is worth thinking about the possibility that they are right.

by Anonymous on 4/03/2007 08:28:00 AM

Regular readers have gotten the impression that I have spent a fair amount of time in the mortgage business. And that I have developed what one might fairly describe as some cynicism about it. One or two of you have asserted or implied that I possess sufficient written communication skills (as we call it in the corporate world) to be able to earn my keep doing something else. This makes some people wonder why I didn’t spend those years doing something else. Join what used to be the Tanta Single-Member Club.

You want to know the truth? I bought it. The American Dream. A place to call your own. Out of the cramped, noisy, expensive apartment, the shabby trailer, mom’s basement; into your own space. A room for the kids. A yard for the dog. Walls you could paint purple, if you felt like it, and hell with the landlord. A 1200 square foot elderly bungalow with a porch. You could start from there. Exposed power lines, cracked sidewalks, closer to the Krogers than the Dorothy Lane? One bathroom for three people? Old double-hung windows in need of a little paint and a little more sweat equity? No garage for the old beater? You could start from there. You could start. There was a beginning. Beginnings imply middles and ends. We were going places someday. It had to start somewhere. The first day of so many people’s futures was in my bank.

The horseshit level of life in a large bank holding company is just like anywhere else in the corporate world. We were there to maximize profit, unsurprisingly. We had no idea quite often how to maximize people other than putting them in cubicles, paying them in quintiles based on ranges of market comparables adjusted for performance reviews which could answer the questions asked but could not question the answers given. There were donuts; there were HR MEMOS on casual day policy violations. There were salaried people who would stay all weekend to help you out of the soup; there were people who would lie like a rug and throw their own grandmothers under the bus for an extra tick on some trade that was occurring for no other reason than to avoid corporate income taxes. There were days when it was so bland and boring and “professional” that one craved the odd sleazeball, in a perverse sort of way. I can remember doing business with Drexel. They were never boring.

So you could go home, some days, feeling the need for a spiritual as well as physical shower. Why would I—or anyone else with a conscience beyond vestigial levels required to support basic sapient functionality in prior evolutionary periods—have anything to do with this?

I put first-time homebuyers in starter homes.

I filled out 9-2900s and looked at DD-214s. Reviewed VC sheets. Priced quarter-coupons for Ginnie IIs. Tracked MICs. Learned the math for UFMIP-netting. You civilians don’t need to know what all this means—it’s as tedious and mind-numbing as it sounds. It’s the administrative and bureaucratic and desperately important risk-management part of doing FHA and VA loans to put first-time homebuyers into starter homes. It’s the nuts and bolts of the American Dream.

I was there, I had the dream, I drank the Kool Aid, I drafted the Letters of Intent to Participate in Pissant County’s latest bond program. I trained loan officers to understand how ARMs work, because I believed that I could get them to want to inform their customers—because it is the right thing to do. I could make it fun to be on the side of the angels, and still make a fair profit for the depositors and the shareholders and the employees.

It was some fine Kool Aid. My cup runneth over with it. I surely believed that goodness and mercy would follow me all the days of my life, and all those young dreamers I enabled would dwell in the house forever.

Perhaps I sound a bit angry from time to time. Broken-hearted people can be that way.

That’s all I have to say today.

by Calculated Risk on 4/03/2007 01:47:00 AM

From the WSJ: Office Rents Increase As Demand Stays Cool

Demand for office space in the U.S. remained sluggish in the first quarter ...

And guess what? Even as demand slows, supply is projected to increase as

... developers will open 76 million square feet of new office space by the end of this year.

The current office space absorption rate is about 8 to 10 million square feet per quarter - and will probably slow as the economy slows. But even though demand is slowing, the supply is already in the pipeline, so vacancy rates will most likely rise. That is why I am concerned about the exposure of U.S. banks to commercial real estate.